Expert: Roger Zona - 11/24/2007

Question
QUESTION: Hi , I think you are perfect for my question, I am really interesed in residental developing field at the age of 18. How does the process work of turning acres of raw land into subdivisions for a high profit. I live in BC CANADA, and there were no experts for this question that live in Canada, but if you can awnser it and share your knowledge, then i will know the right path and will know exactly how to achieve my goals in the future with the right education.

ANSWER: Dear Ivan,
Your question is not difficult to answer but rather long because of all the conditions that take event when you begin a subdivision.
To start with, you get a contract on the purchase of the land with escape clauses in case the project isn't feasible.  Then you investigate the current zoning of the property.  That is - with the local governmental agency allow the land to be subdivided.  If not, you have several other options open.  Lets assume your local "Planning and Zoning" dept. say the land can be subdivided and you are allowed a density of 3.5 houses per acre.  That's a beginning.  About now you prepare a financial "pro-forma" to determine if the project is profitable.  Next - what utilities are available.  That is, Sewer, Water, Drainage, Electricity, etc.  Is the soil suitable for construction, etc.  If things look favorable, you hire or negotiate with a civil engineer or land planner to determine the property layout, number of houses, access roads, public property, easements for utilities, etc.  Then the Land Planner presents the plan to the P & Z dept. and they go through their process of allowing neighbors to object or approve.  If they approve, and you get the zoning you want, then you proceed with a Civil Engineer to design the infrastructure.  

As you can see, this is a tedious and slow process.
There are so many things to think about.  Financing, legal rights, home owners association, planned urban development (a subdivision with mixed housing, commercial tracts and perhaps even industrial tracts).  Then, of course, there is market conditions.  What is the need for housing, what price range can the project support, etc.
In the States we have college courses such as Urban Planning, Civil Engineering, Surveying, Land Planning, etc. that all contribute to being a "developer".  I have developed housing tracts, industrial tracts, a golf course community, high rise projects, etc. and they all are different, have unique problems a can vary from highly successful (and make a great deal of money) or a bust that the bank takes over.  
I would suggest that you get your university over with perhaps with a major in Business Administration, try to find a developer who will let you intern during summer break and then work for the developer after graduation.  Get some experience, save your money for that first land purchase, and become a "Developer".

Lots of luck.  I hope this was helpful.

Roger

---------- FOLLOW-UP ----------

QUESTION: Hi, u have awnsered my question before, and I was wondering how much the cost would be too subdivide one acre into 4 lots, then sell to individuals for profit, with road access already in place at the front. I want to start small and work my way as I get more experience do bigger projects for larger projects. But how much cash would I need to subdivide a acre? Do I have to hire a civil engineer? If the lots sell for 150k - 200k a piece, do you think it is worth it?

Answer
Dear Ivan,
Your question is difficult to answer in the short space I have here.  I live in South Florida and am familiar with costs here but I have no idea what your cost are in BC Canada.  You must prepare a "Pro-forma" or financial projection to determine budgets and profits.  Example:
Cost of:
Land, Civil Engineer, Surveyor, zoning, insurance, real estate taxes, underground utilities, paving, advertising and marketing, real estate broker commissions, financing costs including loan costs and interest, and last but not least - your expenses and out of pocket costs including your deposits and equity capital.
Selling Price (find comparables to establish price):
Deduct all the costs from your selling price and that is your gross profit before taxes.
Frequently I ask the land owner to be a partner rather than buy the land outright.  I have less "out of pocket" and less risk when borrowing money to complete the project.  The land owner gets the cost of his land and an agreed upon percentage of the profits.  The land owner usually makes more money under this plan but must wait for his money.

I'm sorry I cant' get more specific.  You would be well advised to study business, or civil engineering, or general construction.  Experience is the best education and you should find a developer in BC and serve as an intern or work for a year or two to learn the ropes.

Lots of luck

Roger